Sydney's 24-year-old monorail will be torn down and the city's light rail line will revert to public ownership in what the state government is calling a "once-in-a-generation" opportunity to fix transport in the city's CBD.

This morning's announcement by the Premier, Barry O'Farrell, and the Transport Minister, Gladys Berejiklian, came after months of negotiations with the shareholders of the company that owns the light rail and monorail lines.

The monorail is to be pulled down.Credit:Helen Nezdropa

The monorail will be torn down as soon as possible, Mr O'Farrell said, but that might be some time away.

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"The real problem with the monorail, I think for most Sydneysiders, is that it doesn't actually go anywhere that you want to go," Mr O'Farrell said of the line, which opened in 1988.

"The last time I used it, it was $5, and that was whether you went 150 metres between stations or whether you did the full lap," he said.

The state government has invited tenders from construction companies to redevelop the precinct around Sydney's Convention Centre and Entertainment Centre.

The monorail was a potential impediment to the development, and was also facing major maintenance bills.

Buying the light rail, meanwhile, in a combined $19.8 million deal, means the government faces fewer obstacles in extending the network through the CBD and inner west and inner east.

The contract with Metro Transport Sydney, the previous owner of the light rail and monorail, had allowed that company first rights on any extension.

"This is a once-in-a-generation decision to get it right," Ms Berejiklian said.

"That's why we've made this decision. By purchasing the monorail and the light rail network this government has all the options before it to get it right."

Buying the line will also make it easier for the government to eventually offer the same ticketing system on the tram network as it offers on buses and trains.

This is exactly what we've been waiting for from this government - big, bold transport projects.

A new ticketing system, to be called the "Opal Card", will start on ferries this year and buses, trains and trams by 2014.

The City of Sydney council immediately supported today's announcement, as did the state's business chamber.

Ms Berejiklian said last year's decision to allow pensioners and MyMulti holders to use their tickets on the light rail line, which the previous government had refused to do, had led to a 30 per cent to 40 per cent increase in patronage on the line.

In buying out the line, she said the government would now be able to decide whether to buy extra trams to cater for the increased patronage.

MyMulti tickets will not be made available on the monorail in the period before it is taken down.

By the middle of the year the government will release a strategic plan for a light rail extension to the CBD and possibly the eastern suburbs and Sydney University. That plan will include details on what changes to bus routes would accommodate a tram extension.

Lord mayor Clover Moore said in a statement: "This is exactly what we've been waiting for from this government - big, bold transport projects.

"I welcome the purchase of Metro Transport Sydney, which will help fully integrate the current light rail system into the expanded network now being planned.

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"Removal of the ugly and intrusive monorail is also the right next step. Replacing it with efficient and effective light rail will improve transport access in central Sydney."

The monorail was mainly used by tourists, and patronage had fallen about 20 per cent in the last four years.